This op-ed was originally published in the Times Union. 

Farm workers have long demanded overtime pay that kicks in after working 40 hours a week, just like other workers get. This year’s state budget included—at Gov. Kathy Hochul’s urging—a subsidy that will compensate farm owners for 100 percent of the cost of paying overtime, plus a little more to cover whatever extra is involved. Yet, farm owners are still resisting.

They’re wrong to do so.

Farm labor is hard work that sometimes requires very long hours. When it does, workers deserve to be paid fairly for their time. The reason a 40-hour overtime threshold is not already the law should make us wince: When the federal law that governs overtime pay was written in the 1930s, it excluded two job categories that were overwhelmingly held by African Americans—farm laborers and domestic workers.

Farmers may be anxious about whether they can pay overtime and stay afloat. But, the record shows that they should have more confidence in their own ability to be good managers. Overtime pay has worked out fine for farm owners in other states. And in the long run it will make New York farm businesses healthier and the farm economy stronger.

California is the nation’s largest and most important farm state. In the absence of federal action, it is also the state that started implementing overtime for farm workers first. In 2019, California started a four-year phase-in to a 40-hour overtime threshold (six years for small farms). Overtime pay has not corresponded with negative impacts or shocks to the farm economy.

In fact, since the implementation of overtime, there have been no dramatic changes either in average weekly hours worked or total wages paid by farmers. And, the total number of farms operating in California has remained steady. None of these are indicators of an industry on the precipice of collapse because of overpaid farm workers.

How do farm owners accommodate paying higher weekly wages when they ask workers to do overtime? There is, of course, some expense. But, it’s not a dollar-for-dollar cost, so the impact is modest. The reason is increased productivity.

As we have seen in many other instances, when employers are required to pay higher wages, they make a bigger effort to increase the efficiency of the workplace. We’ve seen this when the minimum wage has been increased. We’ve seen it in unionized businesses. And we’ve seen it already on New York’s farms when—after a farmworkers’ rights bill was passed—farm owners were required to pay overtime. Currently farm owners have to pay overtime after 60 hours.

What does an increase in productivity on farms look like?

Farm owners may invest in equipment that makes work easier and faster for workers. They may also find ways to organize work that is more effective. Paying overtime provides a real incentive for that. And, overtime pay will reduce the cost of recruitment and training, because it will reduce turnover.

Earlier this month the state’s Farm Labor Wage Board recommended that New York reduce the overtime threshold for farm workers from 60 hours a week to 40 over the course of 10 years. Gov. Kathy Hochul and Department of Labor Commissioner Roberta Reardon now must decide whether to accept that recommendation. We hope that they will do just that.

Fighting to compete based on low wages and low investment in modernizing farming techniques is a losing battle for New York. Focusing on higher productivity and fair labor standards points to a brighter future for the entire farm sector: farm workers, farm owners, the communities they live in, and all of us who enjoy local produce.

The pandemic highlighted vast inequalities in the United States, especially in the U.S. labor market. Striking disparities were magnified in who could work from home and who had to go into work in person, who was able to keep their job and who suffered from lost work hours or employment altogether, who had health insurance to seek care when they needed it and who didn’t, and who had the ability to take paid sick days to stay home when sick, get vaccinated, or take care of loved ones and who did not. Yesterday, the latest data on employer benefits was released by the Bureau of Labor Statistics. Stark inequalities persist in access to workplace benefits. One that hits hard is the inability of over 60% of the lowest-wage workers in the U.S. to be able to earn paid sick days to care for themselves or family members.  

Figure A  below shows access to paid sick days is vastly unequal: Workers at the bottom are disproportionately denied this important security. The highest-wage workers (top 10%) are two and a half times as likely to have access to paid sick leave as the lowest-paid workers (bottom 10%). Whereas 96% of the highest-wage workers had access to paid sick days, only 38% of the lowest-paid workers are able to earn paid sick days. 

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Government policies enacted in the wake of the pandemic have proven critical for reducing child poverty in the United States. Census Bureau data released last week showed that government social programs kept tens of millions of people out of poverty in 2021.

Child poverty reached its lowest level on record, as calculated by the Supplemental Poverty Measure (a measure that includes both cash and noncash benefits). This new historic low is largely thanks to the expanded Child Tax Credit (CTC), a key component of the 2021 American Rescue Plan (ARP) that has since expired. Without additional action by Congress to renew the expanded Child Tax Credit, we should expect higher child poverty in future years.

Let’s start with the outstanding role the Child Tax Credit played in reducing child poverty. The Child Tax Credit is a payment to support families raising children under 17 years of age of up to $2,000 per qualifying child. The 2021 ARP expanded the credit to increase the level of earnings to families receiving the credit (up to $3,600 per child under age 6) and to make the credit more widely available and fully refundable.

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There are two main debates about what to do about inflation. One is mostly good-faith (if highly contested): It concerns the actions of the Federal Reserve. Another is mostly bad-faith: It uses the existence of elevated inflation as a cudgel against any progressive policy change and as a justification for long-standing ideological priorities. This is most visible in fiscal policy debates, with some people claiming simultaneously that spending must be restrained (a contractionary move in fiscal policy), but taxes must be cut (an expansionary move). 

This bad-faith will certainly rear its head in debates on attempts to move forward on stronger labor standards as well—say by increasing the federal minimum wage. Even under normal circumstances, opponents of minimum wage increases claim that they will be inflationary, so they will almost certainly exaggerate these effects today. In this blog post, I make the following points about the relationship between minimum wages and inflation:  

• Faster inflation makes it more important, not less, to raise the federal minimum wage. Every year lawmakers don’t raise the minimum wage is a year that they have effectively cut the purchasing power and living standards of this country’s lowest wage workers. 
• Even under a worst-case inflation scenario where every penny in extra pay that results from moving the federal minimum wage to $15 by 2027 is passed on in the form of higher prices, the result would be a five-year stretch of inflationary pressure equal to 0.1% per year (or about 1/100th of the increase we’ve seen since 2021), then the inflationary effect would return to zero. 
• Even this extremely mild inflation could be substantially blunted by other margins of adjustment to a higher minimum wage—including a retreat from today’s still sky-high profit margins. During normal times, profits account for about 13% of the price of goods and services, but since recovery from the COVID-19 recession began in the second quarter of 2020, rising profit margins have accounted for roughly 40% of the rise in prices. When these margins normalize, there will be ample room for noninflationary wage growth.  

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The year 2021 proved to be a remarkable showcase of the power of public policies in alleviating economic hardship. This week, the Census Bureau released data from the 2021 Current Population Survey Annual Social and Economic Supplements (CPS ASEC) detailing poverty and other economic conditions across the country. The data revealed that social insurance programs—like Social Security, economic stimulus checks, a strengthened unemployment insurance (UI) system, and the expanded Child Tax Credit—kept more than 25 million people out of poverty. State lawmakers should do everything in their power to revive these programs. 

Differences in the supplemental and official poverty measures highlight the impact of pandemic support programs 

In 2011, the Census Bureau began annually releasing an additional poverty measure called the Supplemental Poverty Measure (SPM). Although imperfect, the SPM is a much better measure of poverty than the official poverty rate. SPM accounts for major government benefits like Social Security and child tax credits, and uses a more holistic measurement of modern costs of living and geographical differences in those costs. The latest data show that the 2021 SPM rates are the lowest on record for all years for which SPM estimates are available, starting from 2009. This is even more remarkable considering that the economic hardships and disruptions brought on by the COVID-19 pandemic were still very present during 2021.  

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On Thursday, the U.S. Census Bureau released 2021 household income and household earnings data for states from the American Community Survey (ACS). National averages hide the wide disparities experienced by workers and families across states while state-level data can help us understand how policy choices impact income and earnings. According to the ACS, inflation-adjusted median household income in 2021 was $69,717 nationally with large differences across states. Nineteen states and the District of Columbia had median household incomes above the national average with the highest being Maryland ($90,203), The District of Columbia ($90,088), and Massachusetts ($89,645). However, 31 states had median household incomes below the national median with the lowest being in Mississippi ($48,716), West Virginia ($51,248), and Louisiana ($52,087).

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The 2021 Census Bureau reports on income and poverty provide a first official glimpse at the economic condition of U.S. households by race and ethnicity in the first full year of the COVID-19 economic recovery, which reached people of color much faster than the recovery from the Great Recession.  

The faster pace of this recovery can be attributed to the strong pandemic policy response that not only contributed to robust job growth throughout 2021, but also provided critical income supports to economically vulnerable families and children.

However, along with these positive outcomes came a spike in inflation that threatened to chip away at any income gains. As a result, in 2021, real median household income ($70,784) was not statistically different from 2020 ($71,186). Real median household income was also statistically unchanged across all racial and ethnic groups. Reported income estimates reflect the Census Bureau’s inflation adjustment for 2021 – an annual increase of 4.7% between 2020 and 2021 and the largest annual increase since 1990. While this suggests that median incomes essentially kept pace with the 2021 rise in prices, these estimates do not reflect the more rapid increase in inflation in 2022.   

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The number of workers with health insurance coverage grew between 2020 and 2021 as the economy recovered from the massive job losses associated with the coronavirus pandemic. Most people (91.7%) had health insurance coverage at some point during the year and the share of uninsured people fell from 8.6% in 2020 to 8.3% in 2021.  

Notably, the share of Black people who were uninsured fell from 10.4% in 2020 to 9.0% in 2021, marking a rare occurrence in which the Black uninsured rate fell below double digits.  

In 2021, most people (54.3%) had health insurance through an employer (either their own employer or a family member). The share of people with private health insurance of any kind (employment-based or through individual purchase) fell slightly to 66.0%, while the share of those with a public plan rose to 35.7% (note that coverage types are not mutually exclusive – one person can have two types of health insurance coverage).  

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It should not have taken a pandemic to realize poverty is a public policy choice.  

Public investments in safety net programs continue to be extremely effective poverty reduction tools, as newly released Census income data show. Government social programs kept tens of millions of people out of poverty in 2021. Because of expansions to programs like unemployment insurance benefits and the Child Tax Credit, poverty rates were actually lower in 2021 than they were prior to the COVID-19 pandemic.  

The poverty reduction achieved through expanded social insurance programs highlights how much policymakers’ choices can impact poverty.   

Unfortunately, some of the program expansions enacted in the pandemic have already been reversed, and cuts to programs like unemployment benefits and the Child Tax Credit will increase household economic distress going forward. 

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Below, EPI senior economist Elise Gould offers her initial insights on the Census Bureau’s latest data on earnings, incomes, poverty, and health insurance for 2021. Read the full Twitter thread here and follow along for more to come.

The federal government played a vital role in reducing poverty in 2021. While Social Security remains the largest poverty reducer in the U.S.—reducing the number who would have been in poverty in 2021 by 26.3 million—the relief measures in 2021 were vital. pic.twitter.com/zYDwW87lIT

— Elise Gould (@eliselgould) September 13, 2022

Even with the rise in inflation, the bounce back in the labor market and strong safety net programs such as the child tax credit meant a reduction in poverty between 2020 and 2021. Remember SPM poverty includes those safety net programs while the Official Pov Measure does not. pic.twitter.com/4TA7YVekbs

— Elise Gould (@eliselgould) September 13, 2022

Today, the Census Bureau also released valuable statistics on earnings for men and women in 2021. A bit surprising to me that there was little change in the overall number of workers, but a notable increase in full-time, year-round workers in 2021, for both men and women. pic.twitter.com/iep9KUELX7

— Elise Gould (@eliselgould) September 13, 2022

Median earnings for all workers (regardless of work hours) rose between 2020 and 2021 by 4.6%, in part because of the shift from part-time to full-time work. The 4.5% rise in women’s earnings was particularly good news given that theirs is still significantly lower than men’s . pic.twitter.com/WIrGOBAmej

— Elise Gould (@eliselgould) September 13, 2022

Below, EPI director of research Josh Bivens offers his predictions for tomorrow’s release of the consumer price index (CPI) for August. Read the full Twitter thread here. 

The price decline will be driven overwhelmingly by commodity price softening. But even core inflation (excluding food and energy) fell in the PCE index last month to its lowest level since 2020. 2/

— Josh Bivens (@joshbivens_DC) September 12, 2022

What should policymakers if they get another month of breathing room on inflation? Many people will be persuaded by a view that the responsible thing to do here is maintain the fight to cram price pressure down as far as possible. 4/

— Josh Bivens (@joshbivens_DC) September 12, 2022

But, the “maintain pressure” view is only responsible if one thinks measurably-greater economic slack (higher unemployment, for example) is needed to pull inflation back down to more-normal levels (say around 2-3%) in a reasonable time-span. 6/

— Josh Bivens (@joshbivens_DC) September 12, 2022

Goods prices are set to post outright falls going forward. Supply chain pressure seems to unwinding – even in the face of China’s continued Zero Covid approach. The normalization of pre-pandemic spending patterns (more services and less goods) is continuing. 8/

— Josh Bivens (@joshbivens_DC) September 12, 2022

In the labor market, over the past 6 months, average hourly earnings are growing at a 4.8% annualized pace, down a full percentage point from January – a pronounced fall even with low unemployment. 10/

— Josh Bivens (@joshbivens_DC) September 12, 2022

About those profits – while the most recent quarter saw a huge increase in the contribution of profits to price growth, this was almost surely mostly in the energy sector. 12/

— Josh Bivens (@joshbivens_DC) September 12, 2022

What all this tells us is that something close to the current state of economic slack is consistent with moderating price pressures – even outside of food and energy. 14/

— Josh Bivens (@joshbivens_DC) September 12, 2022

For example, real final sales to domestic purchasers (domestic demand) grew by just 1.2% between 2021q2 and 2022q2. That’s a growth rate that should have substantially “cooled” the economy by any measure. 16/https://t.co/IBH0CQv4qe

— Josh Bivens (@joshbivens_DC) September 12, 2022

A month of flat prices would mean that the inflationary outlook has meaningfully changed. So, policy should change too. Hiking by 0.75 in the face of flat monthly prices tilts risks too-sharply in the direction of recession, and isn’t needed to keep tamping down inflation. end/

— Josh Bivens (@joshbivens_DC) September 12, 2022

The vast majority of families and households in the United States rely on a combination of labor earnings from work and public assistance to make ends meet, especially throughout the pandemic recession and recovery.  

Next week, the Census Bureau will release their latest data on earnings, incomes, poverty, and health insurance for 2021, which will inform our understanding of people’s economic wellbeing last year. Below, I provide context for the data next week by looking at how an expanding economy—the robust bounce-back in the labor market— and vital public programs sustained workers and their families in 2021.  

These two phenomena are related, as public policy directly led to the robust recovery we experienced in the wake of the pandemic recession. Public policy further helped workers and their families stay afloat with expanded and enhanced unemployment insurance, economic impact payments, and child tax credits, to name a few. 

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The original version of this post inadvertently left New Jersey off the list of states that will raise their minimum wage in response to inflation, it has since been updated.

13 states and the District of Columbia have policies that increase (or index) their state’s minimum wage based on inflation. Most of those indexed increases are based on the August-to-August change in the Consumer Price Index, which will be announced sometime in mid-September. With inflation higher than it has been in recent years, the indexed inflation increases in these states will be higher than usual as well. Still, these indexed increases are similar in size to other legislated minimum wage increases in recent years and they will help reduce the burden of rising prices for low-wage workers and their families.  

The federal minimum wage has remained at $7.25/hour for the past fifteen years. Since then, its purchasing power or real value has dropped by 27% because of increases in the cost of living. As a result, the value of the minimum wage is the lowest since 1956. In response, thirty states, Washington D.C., and dozens of local governments have introduced their own minimum wages that are higher than the federal minimum wage. Workers in many of those states still experience the same problem – if the state doesn’t raise its minimum wage on a regular basis, its value will decline. 

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Below, EPI economists offer their initial insights on the jobs report released this morning, which showed 315,000 jobs added in August.

From EPI senior economist, Elise Gould (@eliselgould):

Read the full Twitter thread here. 

In August, most jobs were added in education and health services and professional and business services. While govt jobs increased by 7,000 in August, they remain 645,000 below pre-pandemic levels, a concerning phenomenon for those workers and the vital services they provide. pic.twitter.com/wMoqhfZhNg

— Elise Gould (@eliselgould) September 2, 2022

With the August increase, private sector employment is now 0.7% above pre-pandemic levels while state and local jobs remain stubbornly 3.2% below its February 2020 level with little improvement in recent months. pic.twitter.com/VS9ICLnRre

— Elise Gould (@eliselgould) September 2, 2022

The latest quarterly change (annualized) in average hourly earnings for all private-sector and production-nonsupervisory workers shows no signs of acceleration and demonstrates, once again, that wages in the labor market are pulling down (not pushing up) inflation. pic.twitter.com/dc1OcLulbi

— Elise Gould (@eliselgould) September 2, 2022

Troubling trend in Black unemployment, which rose 0.6 pps over the last two months to 6.4%. It’s a more volatile series, but labor force participation and EPOPs for Black workers have declined in each of the last three months as well. pic.twitter.com/YpVKSfijag

— Elise Gould (@eliselgould) September 2, 2022

The rise in Black unemployment and fall in participation and employment in August was experienced by both Black men and Black women.

The rise in Hispanic unemployment was accompanied by an increase in participation and employment for both Hispanic men and Hispanic women. pic.twitter.com/cqGR6WjUVm

— Elise Gould (@eliselgould) September 2, 2022

From EPI president, Heidi Shierholz (@hshierholz):

Read the full Twitter thread here. 

We added 315,000 jobs in August. This is down substantially from the blistering average pace of 561,000 per month for the 12 months ending in February of this year, but remains solid. 2/

— Heidi Shierholz (@hshierholz) September 2, 2022

Wage growth dropped in August and has clearly not accelerated in 2022. 4/ pic.twitter.com/4QTO3gVadZ

— Heidi Shierholz (@hshierholz) September 2, 2022

Though today’s release underscores we’re almost surely not in a recession now, the fed may have already overshot and secured a recession in coming months. Regardless, they should slow the pace of rate increases substantially and be ready to go into neutral or even cut rates. 6/

— Heidi Shierholz (@hshierholz) September 2, 2022

The private sector has gained back all the jobs it lost in the covid recession, and more. State and local governments have gained back less than 60%. I’m a broken record on this, but we have to push state and local govts to use their ARPA funds to raise pay & hire workers. 8/

— Heidi Shierholz (@hshierholz) September 2, 2022

The overall numbers mask big disparities for different groups. Due to the impact of structural racism on the labor market, people of color have much higher unemp rates than white workers. For example, the unemp rate is currently 6.4% for Black workers, 3.2% for white workers. 10/

— Heidi Shierholz (@hshierholz) September 2, 2022

But it’s worth noting that all groups are seeing far faster recoveries *than they did following the Great Recession.* From the start of the Great Recession, it took more than 10 years for Black unemployment to get down to 6.4%, but this time around it took just over 2 years. 12/

— Heidi Shierholz (@hshierholz) September 2, 2022

Of course, a recession caused by the fed raising rates too aggressively would undo a great deal of the enormous gains that have occurred in the current recovery. 14/

— Heidi Shierholz (@hshierholz) September 2, 2022

It’s been nearly 60 years since approval for unions in the U.S. has been this high. 

More than 70% of Americans now approve of labor unions. Those are the findings of a Gallup poll released this morning, and they shouldn’t be surprising.   

Why? U.S. workers see unions as critical to fixing our nation’s broken workplace—where most workers have little power or agency at work.  

The pandemic revealed much about work in this country. We saw countless examples of workers performing essential jobs—such as health care and food service. They were forced to work without appropriate health and safety gear and certainly without pay commensurate with the critical nature of the work they were doing.  

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Below, EPI senior economist Elise Gould offers her initial insights on today’s release of the Job Openings and Labor Turnover Survey (JOLTS) for July. Read the full Twitter thread here. 

The July data show mild reductions in hires and quits while layoffs hold steady. Hires remain above pre-pandemic levels as the labor market continues to expand. Layoffs remain low in historical terms. Elevated quits mean workers seeking (and finding) better opportunities. pic.twitter.com/4DSSBXsfUI

— Elise Gould (@eliselgould) August 30, 2022

 

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This week’s Senate passage of the California FAST Recovery Act, AB257, marks a historic breakthrough for workers and state labor policymaking with far-reaching national implications. As EPI and the National Employment Law Project noted in a statement endorsed by forty organizations earlier this year, AB257 “is important for workers across the country and for shaping the future of our national economy. The state of California has a long history of leading the way on workers’ rights and worker protections, including becoming the first state to pass a $15 minimum wage in 2016—a breakthrough that paved the way for states across the country to take similar action.” 

AB257 was designed to address poverty wages and widespread worker rights violations that have resulted from extremely unequal bargaining power between fast food workers and employers across the industry. If signed into law by Governor Newsom, the legislation will give workers a seat at the policymaking table to engage as equals with franchisees, franchisors, and government agencies through a 10-member Fast Food Sector Council with authority to set statewide minimum wages and standards across the industry. Standards set by the new council will have a direct impact on over 550,000 California fast food workers, over 80% of whom are workers of color and two-thirds of whom are women. 

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Teaching, while rewarding, is one of the most stressful occupations in the U.S., and many teachers experience serious emotional and mental problems related to school stress. The COVID-19 pandemic exacerbated this phenomenon as teachers adapted to challenging working environments and navigated frequent technical difficulties in new online platforms, all while dealing with health concerns during in-person instruction.

Stress is the most common reason for leaving teaching early, and it is also associated with job absenteeism and poor teacher performance, negatively impacting student outcomes. As more schools face increased teacher turnover rates and intensified teacher shortages, it is essential to investigate what influences teachers’ job-related stress.

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Earlier this summer, in a 6-3 decision, the Supreme Court finalized the proposed overturning of landmark cases Roe v. Wade and Planned Parenthood v. Casey which have protected the right to abortion in the U.S for decades. As a result, twenty-one states already have or are in the process of restricting abortion access completely. Other states will soon follow, resulting in the denial of abortion in over half the country. Though this decision was unsurprising, the blatant disregard by the Justices of the negative economic effects this decision will have on millions of women continues to be shocking.

Abortion bans negatively impact women’s economic well-being in various ways, from future earnings, college completion, and the broader issues of economic security and mobility. Though it’s clear this issue will negatively impact all women in this country, it is important to note that Black and Brown women are likely to face the negative economic consequences of this decision at a disproportionate rate.

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Introduction

Home health care workers are part of the “care economy” that makes all other work possible.

These workers include nursing, psychiatric, and home health aides; personal and home care aides; and nursing assistants working in private households. They provide services and support for older adults, people with chronic illnesses, and people with disabilities allowing them to stay in their homes and communities, rather than nursing homes or other institutions. And the COVID-19 public health emergency further highlighted the importance of this workforce, who provide long-term care at a time when congregate settings are limited in their ability to support physical distancing or quarantining.

So why don’t we value these workers?

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Below, EPI economists offer their initial insights on the jobs report released this morning, which showed 528,000 jobs added in July.

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Consumer price data for June 2022 showed another month of rapid inflation, with overall inflation rising 9.1% year-over-year and core inflation (which doesn’t include volatile energy and food prices) rising by 5.9%. This level of inflation has obviously become a major political issue this year. But however this issue resonates politically, as an economic matter a common narrative that blames the Biden administration and its policy choices for causing the inflation is deeply misleading.

This is not simply a case for exonerating the Biden administration’s choices—how the recent inflationary outbreak is interpreted will have huge consequences for how policymakers respond. A loud chorus of economic analysts and influential policymakers continue highlighting the need for the Federal Reserve to continue raising interest rates sharply to slow growth to “rein in” inflation. This approach risks terrible consequences and threatens to cast aside the amazing policy achievement of a full jobs recovery from the pandemic recession.

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On Friday, the Bureau of Labor Statistics (BLS) will release its monthly report on the state of the labor market. In addition to top-line payroll employment growth and changes in labor force participation, probably the most anticipated measure is the pace of nominal wage growth.

Even with the recent contraction in gross domestic product (GDP), the labor market has been expanding at a steady rate and wage growth continues to fall short of inflation. Despite this, many remain worried that abnormally high nominal wage growth (relative to pre-pandemic) will prevent inflation from returning to more-normal levels in the year ahead. In this jobs day preview post, we take a closer look at wage growth using several different measures to gauge just how worried we should be that wage growth will not normalize in the coming year without aggressive policy measures that cause collateral damage (like higher unemployment) in the labor market. We find that most of these measures show decelerating wage growth in very recent quarters.

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Yesterday’s data showing negative gross domestic product (GDP) growth for the second consecutive quarter has sparked a debate about whether the U.S. economy is in recession. Below are some quick thoughts interpreting the numbers, and some larger questions about recession and inflation.

• We’re very likely not in recession currently, even though we’ve had two straight quarters of negative GDP growth. The “two straight quarters” criterion for a recession is a rough rule of thumb. The more generally accepted arbiter of business cycles in the U.S. is the National Bureau of Economic Research Business Cycle Dating Committee, which weighs changes in many economic variables to determine the start and end dates of recessions. The most notable statistics arguing against the view that we’re in recession currently are unemployment and employment growth. Both remain quite strong.
  • The negative growth in the first quarter of 2022 was mostly driven by statistical quirks that hid some real strength in the economy. Specifically, exports were quite weak and imports quite strong, but both of these measures can be pretty volatile. Net exports in the second quarter, for example, were positive and added to growth. But, if I had to choose one measure of the strength of the domestic economy that stripped out volatile measures that could be introducing noise in our assessment, I’d choose domestic demand growth (known officially as final sales to domestic purchasers)—this is a measure of spending by U.S.-based households, businesses, and governments that strips out volatile changes in firms’ inventories. In the first quarter, this domestic demand growth was acceptably strong, rising at a 2.0% rate.
  • Conversely, fundamental growth in the second quarter was weak. Domestic demand growth actually shrank in the quarter. On top of that fundamental weakness, a statistical quirk—a huge decline in the contribution to GDP made by changes in firms’ inventories—also weighed unusually on growth.
  • In short, the negative growth in the first quarter of 2022 looked much worse than it was. This is far less true for the negative growth in the second quarter.

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In recent months, a number of policymakers have cited inflation concerns as the source of their opposition to budget reconciliation proposals that would raise taxes progressively and boost federal spending on public investments and social insurance. (Many of these proposals were once collected together and named the Build Back Better Act (BBBA), but since negotiations over the full BBBA faltered there has been no single name for the shifting permutations of tax and spending changes that are under debate.)

Today’s inflation is a real concern⁠—it is running too high and is reducing households’ purchasing power. But linking fiscal policy decisions about the proper level of taxes and spending in the medium and long run to today’s inflation makes little sense. Even worse, many of these policymakers cast both the tax increases and the spending increases as potentially inflationary. This is not just unwise—it is simply economically innumerate.

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